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Conseco: Its Option Plan Could Help Shareholders

I am writing to express my dissatisfaction with the cursory nature in which Conseco Inc.'s 1998 stock-option program was discussed in ''The mother of all stock option plans'' (Finance, Nov. 23). Author Debra Sparks quotes Graef Crystal and Alan Johnson to lend support to the premise that Conseco's option plan would disproportionately benefit the option-holders in the event of a change of control at Conseco because the company would be required to redeem the options at the takeover price. Certain executives would benefit even further, states Sparks, from a change-of-control provision requiring the company to pay the executives multiples of their respective annual salaries/bonuses. The end result of such ''exceptionally lavish'' incentives: Conseco executives are encouraged to sell the company (thus sacrificing long-term shareholder value).

These points are all debatable. To begin, an option-redemption provision like the one outlined could serve as an effective ''poison pill'' (if it were to bind the acquiring company), helping to raise any potential takeover price, as could the provision requiring payment of salary/bonus multiples. Moreover, by linking the option strike price to the takeover price, managerial interests (in theory) are aligned with shareholder interests, since the manager will opt for sale over entrenchment.

Finally--and most important--shareholders have a voice in all of these matters. While state law generally vests boards of directors with some latitude over stock-option grants, several factors (such as stock-exchange rules and federal income-tax laws) encourage--or, in some cases, require--boards to seek shareholder ratification. Presumably, such is the case with Conseco, since the article points out that it is seeking proxies.

I encourage you to devote more time to this issue so investors can better gauge the effects executive-compensation decisions have on the markets.

Charles Zangara
Plainsboro, N.J.


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Updated Dec. 30, 1998 by bwwebmaster
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